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November 16, 2011

Buffett Makes Rare Investment in Tech Sector With IBM

Buy could make him biggest shareholder in company

Although he normally shuns tech stocks, Warren Buffett, head of Berkshire Hathaway, veered from his usual policy and sank close to $11 billion into shares of IBM, picking up a stake of almost 5.5% that makes him potentially its biggest shareholder. Currently that position is held by State Street Global Advisors.

Citing IBM's ability to keep corporate clients, which tends to indicate he values the company more for its services than its technology—something he has previously said he does not understand well enough to invest in—Buffett (left) admitted in a Reuters report that perhaps he should have bought in five years ago when the price was lower. However, technology analysts said that despite the fact he could have bought the stock for one-third less a year ago, it was still a good move for him.

Collins Stewart analyst Louis Miscioscia said in the report, "Maybe he could have gotten a better price ... but if you look at Warren Buffett's investment policy I would assume this is a long term investment. This is not your father's IBM; the management has done a good job of cost control, returning cash to shareholders."

Buffett himself was quoted saying, "It's a company that helps IT departments do their job better. It is a big deal for a big company to change auditors, change law firms" or to switch to a new technology vendor. He added, "I don't know of any large company that really has been as specific on what they intend to do and how they intend to do it as IBM."

The company is also seen as a global play by Buffett, who gradually built up the stake in the company over the last eight months without any public notice. That suggests that perhaps Berkshire's stake in IBM did not pass reporting thresholds until the third quarter.

Some of Buffett's stock purchases have been kept temporarily confidential at his request, lest his acquisitions spur broader market action by other investors eager to follow where he leads. The IBM deal was so quiet that IBM itself was unaware of Buffett's actions until Monday when he announced he'd bought a total of 64 million shares.